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Defaulting on student loans is something that happens after you miss a series of payments on your loan. The number of loan payments missed before the loan enters default varies between federal and private student loans, but the consequences of defaulting on either type can be severe — including having the loans go to a collections agency and potential negative impacts on your credit score.

For a year following the resumption of federal student loan payments in October 2023, a temporary “on-ramp” transition period means that missing required monthly payments generally won’t lead to defaulted loan status. Below we discuss how this on-ramp works, as well as what typically happens if you miss your required federal student loan payments.

What Is Student Loan Default?

Student loan default is a term for when you completely stop paying student loans. This can occur if you fail to make required monthly payments on federal or private student loans. Millions of federal student loan borrowers, however, did not have to make any required payments during the Covid-19 forbearance.

Most federal student loan borrowers had a 0% federal student loan interest rate from March 13, 2020, until Sept. 1, 2023, under the pandemic-era payment pause. These borrowers, including those with defaulted and nondefaulted loans held by the U.S. Department of Education, did not have to make federal student loan payments over that three-year period.

The 2023 debt ceiling bill officially ended the Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1 and payments to resume in October 2023. Any federal student loan borrower who received the Covid-19 forbearance relief will be eligible for the 12-month on-ramp protection automatically.

If you’re covered by the on-ramp, you’re protected from having your federal student loans reported as delinquent or placed in default from October 2023 through September 2024. But federal student loan interest will still accrue during the on-ramp, so failing to pay may increase your student debt burden.


💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.

Student Loan Default vs. Delinquency

Student loan delinquency is the early stage of missing a required loan payment when due. If you fail to pay over an extended period, you could face greater consequences for reaching late-stage delinquency and carrying defaulted student loans.

Federal student loans are typically considered delinquent when you’re past due on a required payment by at least one day but less than nine months. Federal student loans are typically reported to the credit bureaus as delinquent if you are 90 or more days past due.

A delinquent federal student loan typically becomes defaulted if you fall at least 270 days past due on a required payment. The typical metrics of delinquency vs. default don’t apply during the on-ramp of October 2023 through September 2024 for eligible borrowers who miss payments during that 12-month period.

Lenders of private student loans can set their own parameters for delinquency vs. default. Banks, credit unions, fintech companies, and state-related nonprofits offer private student loans. Some may consider you in default if you are 60 or more days delinquent on a private student loan. Others may define default as falling 180 days past due after receiving a final demand letter.

Can You Default on Student Loans?

Yes, it’s possible for borrowers to default on student loans. If a borrower is struggling to make monthly payments on their student loans, default can be an option if they do not take any other action. If you are having issues making monthly payments on your federal student loans and just stop making payments, after a certain number of missed payments, the loan will enter default.

Private student loans can also go into default, though they may enter default more quickly than a federal student loan.

Recommended: What is the Student Loan Default Rate?

How to Default on Student Loans

To get more technical, defaulting on federal student loans is a process that takes place over a period of nonpayment. Typically when you first miss a payment, the loans are delinquent but not yet in default. At 90 days past due, your lender can report your missed payments to credit bureaus. And when you reach 270 days past due, your student loans are typically considered in default.

Keep in mind that most federal student loans are protected from entering default during the on-ramp period. (If you entered the Covid-19 pandemic with a defaulted federal student loan held by the U.S. Department of Education, the Education Department in December 2022 started reporting those loans as “current” rather than “in collections” to credit reporting agencies.)

Here’s what you can expect if you’re eligible for the on-ramp from Oct. 1, 2023, through Sept. 30, 2024:

•   You won’t be considered delinquent if you miss a required payment

•   Late payments or missed payments won’t be reported to the credit bureaus

•   Your loans won’t be placed in default

•   Debt collection agencies won’t contact you about your on-ramp eligible loans

For private student loans, the terms for defaulting can vary. Private student loan lenders may report an account as delinquent when it’s 30 days past due and consider you in default if you’re 60 days or more past due on a required payment.

Private lenders may also place student loans in default if the borrower declares bankruptcy, passes away, or defaults on another loan. Terms may vary by lender, so if you have private student loans, double-check how they define default.

Defaulting on your federal or private student loans can have serious consequences, but there are ways to avoid defaulting on your student loans or recover if your loans are currently in default. If you’re worried about student loan default, the most important thing you can do is educate yourself on what it is, and how to avoid it.

Below we highlight four potential consequences of what happens when your student loans default.

What Happens When Your Student Loans Default?

Here are four potential consequences of what can happen if you default on your federal or private student loans:

1. Collection Agencies Might Come Knocking

When a borrower defaults on student loans, the lender may eventually turn the debt over to a collection agency. The collection agency will then attempt to recover the payment, typically bombarding you with frequent letters and phone calls.

Collection agencies may also attempt to determine what other assets, including bank accounts or property, would allow you to pay your debt. On top of dealing with regular calls from debt collectors, you may also be responsible for paying any additional fees the collection agency charges on top of your student loan balance.

2. Loan Forgiveness and Forbearance Options Are No Longer on the Table

Student loan default on federal loans means that the federal government can revoke your access to programs that might make it easier for you to pay your loans, including loan forgiveness or forbearance. This means that even if you qualify for something like the Public Service Loan Forgiveness program, you could be rendered ineligible if you let your loans go into default.

Additionally, borrowers in default may lose eligibility for all future types of federal financial aid.

3. Your Credit Score Might Be Impacted

Once your student loans are in default, the lender or the collection agency will report your default to the three major credit bureaus. This means that your credit score could take a hit. A low credit score can make it harder for you to get a competitive interest rate when borrowing for other needs, like a car or home loan. In fact, having federal student loans in default can make it difficult to buy or sell real estate and other assets.

4. You Might Have to Give up Your Tax Refund, or a Portion of Your Wages

If your loan holder or a collection agency can’t recover the amount owed, they can request that the federal government garnish your tax refund and even some of your income. For example, if you filed your taxes and were eligible for a refund, the government would instead take that refund money and apply it toward your defaulted student loan balance. On top of that, the government can garnish your wages, which means that they can take up to 15% of each paycheck to pay back your loans.

Recommended: What Happens When Your Student Loans Go to Collections?

How Can You Get Student Loans Out of Default?

Defaulting on student loan debt is a serious matter, but the good news is that there are ways of getting out of default.

First, stop avoiding those collection calls. If your student loan provider or a collection agency is calling, your best bet is to meet your lender or the agency head-on and take charge of the situation. The lender or the collection agency will be able to talk through the repayment options available to you based on your personal financial situation. They want you to pay, which means that they might be able to help find a payment plan that works for you.

The lender may be able to offer a variety of options tailored to your individual circumstances. Some of these options might include satisfying the debt by paying a discounted lump sum, setting up a monthly payment plan based on your income, consolidating your debts, or even student loan rehabilitation for federal loans (more to come on this). Don’t let your fear stop you from reaching out to your lender or the collection agency.

How to Avoid Defaulting on Student Loans

Of course, even if you can get yourself out of student loan default, the default can still impact your credit score and loan forgiveness options. That’s why it’s generally best to take action before falling into default. If the student loan payments are difficult for you to make each month, there are things you can do to change your situation before your loans go into default.

First, consider talking to your lender directly. The lender will be able to explain any alternate student loan repayment plans available to you.

For federal loans, borrowers may be able to enroll in an income-driven repayment (IDR) plan. These repayment plans aim to make student loan payments more manageable by tying them to the borrower’s income. This can make the loans more costly over the life of the loan, but the ability to make payments on time each month and avoid going into default are valuable.

The Saving on a Valuable Education (SAVE) Plan is one of the IDR options to consider if you’re a federal student loan borrower. The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments under the SAVE Plan. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)

Is Refinancing an Option?

Refinancing student loans could potentially help you avoid defaulting on your student loans by combining all your student loans into one, simplified new loan. When you refinance student loans, you might be able to secure a lower interest rate or loan terms that work better for your situation.

If a borrower is already in default, refinancing could be difficult. When a student loan is refinanced, a new loan is taken out with a private lender. As a part of the application and approval process, lenders will review factors including the borrower’s credit score and financial history among other factors.

Borrowers who are already in default may have already felt an impact on their credit score, which can influence their ability to get approved for a new loan. In some cases, adding a cosigner to the refinancing application could help improve a borrower’s chances of getting approved for a refinancing loan. Know that if federal student loans are refinanced they are no longer eligible for federal repayment plans or protections.


💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Help on Defaulted Student Loans

If you default on a federal student loan, here are some programs that can help you get them out of default:

Loan Rehabilitation

To apply for student loan rehabilitation, contact your loan servicer. In order to rehabilitate your federal student loan you must agree to make nine voluntary, reasonable, and affordable monthly payments within 20 days of the payment due date. This agreement must be completed in writing. All nine payments must be made within 10 consecutive months.

Private student loans do not qualify for federal student loan rehabilitation. Federal Direct Loans or loans made through the Federal Family Education Loan (FFEL) program qualify for student loan rehabilitation.

Loan Consolidation

Consolidating your federal student loans into a Direct Consolidation Loan is another option to get your defaulted federal student loans out of default. To consolidate defaulted federal student loans into a new Direct Consolidation Loan you have two options, which are:

•   Repaying the consolidated loan on an income-driven repayment plan.

•   Making three monthly payments on the defaulted loan before consolidating. These payments must be consecutive, voluntary, on-time, and account for the full monthly payment amount.

Again, private student loans are not eligible for consolidation through a Direct Consolidation Loan.

Recommended: Understanding How Student Loan Consolidation Works

Consumer Credit Counseling Services (CCCS)

Credit Consumer Counseling Services (CCCS) are usually non-profit organizations that offer free or low-cost counseling, education, and debt repayment services to help people facing financial difficulties.

If you’ve defaulted on a student loan, a credit counselor can help by looking at your entire financial situation along with your student debt, laying out your options, then working with you to come up with the best option for student loan debt relief.

If you’re struggling with multiple debts, a credit counselor may be able to set up a debt management plan in which you make one monthly payment to the credit counseling organization, and they then make all of the individual monthly payments to your creditors.

While counselors usually don’t negotiate down your debts, they may be able to lower your monthly payments by working with your creditors to increase your loan terms or lower interest rates.

Just keep in mind: Credit counseling agencies are not the same thing as debt settlement companies. Debt settlement companies are profit-driven businesses that often charge steep fees for results that are rarely guaranteed. Debt settlement can also do long-term damage to your credit.

To avoid debt settlement scams and ensure you find a reputable credit counselor, you might start your search using the U.S. Department of Justice’s list of approved credit counseling agencies.

The Takeaway

Student loan default can have serious negative effects on your credit score and financial stability. If you’re worried about defaulting on your student loans, or you have already defaulted, consider taking immediate steps to remedy the situation before it gets worse. Contact your lender or loan servicer to learn about options available, and consider refinancing your loans to secure a lower interest rate or monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.)

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

FAQ

Does a defaulted student loan ever go away?

It is possible to rehabilitate or consolidate a defaulted federal student loan to get it out of default. Some private lenders may offer programs or assistance to borrowers facing default, but they are not required to do so.

Will my student loans come out of default if I go back to school?

No, if you have student loans already in default, going back to school will not remove them from default. Students who have student loans in default will need to get the loans out of default before they will qualify to borrow any additional federal student loans.

Are defaulted student loans forgiven after 20 years?

Defaulted loans are not forgiven after 20 years. Students in default may consolidate or rehabilitate their loan and then enroll in an income-driven repayment plan, which could potentially qualify them for loan forgiveness at the end of their loan term, up to 25 years.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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A credit card can serve as a fantastic financial tool and offer a number of perks, from the opportunity to build your credit to the chance to rake in lucrative rewards. However, using a credit card responsibly is key to reaping those benefits. Otherwise, a credit card is more likely to harm your financial well-being than help it.

Using a credit card responsibly involves sticking to basic rules like making on-time payments and avoiding practices such as spending more with your card than you can afford to pay off. By learning some tips for how to use a credit card responsibly, you’ll be well on your way toward making the most out of this financial tool.

How Do Credit Cards Work?

A credit card is a payment card that offers access to a revolving line of credit. You can tap into this credit line for a variety of purposes, including making purchases, completing balance transfers, and taking out a cash advance. Cardholders can borrow up to their credit limit, which is largely determined based on their creditworthiness and represents the maximum amount they can borrow.

It’s necessary to make at least a minimum payment by the due date each month in order to avoid a late fee. However, to avoid paying interest entirely, cardholders must pay off their balance in full each month; interest accrues on any balance that rolls over from month to month.

Many credit card companies charge compounding interest, which means that not only will you owe interest on any outstanding balance, you’ll also end up paying interest on the interest. That’s because this interest is calculated continually, then added to your balance, and it may be compounded daily. You may be shocked to see how much credit card interest you’ll pay if you only make the minimum payment each month.

Understanding Your Statement

A crucial component of knowing how credit cards work is understanding your monthly credit card statement. Your statement contains a number of important pieces of information about your credit card account, including:

•   Your account information

•   Your account summary, including your payment due date

•   All purchases made with the card

•   Your total credit card balance

•   The minimum payment due

•   When the credit card payment is due

•   Your available credit

•   Interest charges

•   Rewards summary

Many of these details are key to know in order to ensure you’re using a credit card wisely. For instance, knowing your payment due date will ensure you make your payment on time, avoiding any late fees and a ding to your credit score.

Checking on your available credit can help you ensure you’re not using too much of your credit, which can drive up your credit utilization rate and subsequently drag down your score.

10 Tips For Using a Credit Card Responsibly

To make the most of your credit card, here are several credit card rules to keep in mind — as well as some guidance on what credit card behavior to avoid.

1. Avoid Making Too Many Impulse Purchases

To use a credit card responsibly, you want to avoid overspending with it. How many is “too many” purchases depends upon how much your impulse buys cost and how easily they fit into your budget. If you know you can pay off your credit card balances and otherwise meet your monthly expenses and savings and other financial goals, then that’s an entirely different situation from one in which your impulse purchases are too costly to promptly pay off and/or prevent you from meeting other financial responsibilities or goals.

If you enjoy making spontaneous buys, you may consider including this as a line item in your monthly budget and then sticking to it. This could add enjoyment to your life without causing financial problems down the road.

2. Use the Right Credit Card

There are a variety of different types of credit cards, and depending on how you plan to use your credit card, one option may make more sense than another. Some credit cards are there to help you build your credit, while others pay out generous rewards.

Selecting which card is right for you requires a look at your financial habits and current situation. For example, if you know that you often end up needing to carry a balance, then it may make sense to find a card that prioritizes low interest rates. Or, let’s say you’re a frequent vacationer — in that case, you might benefit from a travel rewards card.

3. Take Advantage of Benefits Offered

Interested in another way to use your credit card responsibly? Signing up for eligible rewards programs can help cardholders make the most of their card. Each type of credit card may have slightly different reward programs. See what the full range perks offered by your card are — and if you’re not sure, check the card’s website or ask the credit card company for specifics. For example, you might need help understanding what unlimited cash back really means in terms of how you might benefit.

Once you know what perks are available, you can use them strategically. You may discover that the card(s) you have don’t provide the best benefits for you. For example, maybe your card offers one of its highest rewards rates for gas purchases, but you don’t do much driving. In that case, you might be better served by a rewards card that offers a flat rewards rate or that prioritizes a category in which you’re a frequent spender.

Finally, if you’re earning rewards points, it’s also important to consider the best way to use them. Sometimes it’s possible to get a bigger bang for your buck if, say, you use your rewards points at an approved store rather than opting for cash back.

4. Sign Up for Automatic Payments

To avoid missing payments or making them late, consider signing up for automatic payments or autopay. By enrolling in autopay, you’ll regularly have money transferred from a linked account each month in order to cover the amount due (or at least the minimum payment required).

Another option is to sign up for automatic reminders about payment due dates (by text, for example, or by email). You can do this through the credit card company or via a calendar app.

What’s most important is coming up with a plan that works best for you to ensure you make your payments on time. Otherwise, you could face late fees and adverse effects to your credit score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

5. Regularly Check Your Statements

Mistakes do happen on credit card statements and, unfortunately, fraudulent activities could impact your account. Check your statement every month to ensure that you made all the charges that appear, and that any payments you’ve made are accurately reflected.

If something is missing, review the statement dates to see if the transaction may have happened right after the statement cut-off date, for instance. If something seems off, contact your credit card company for clarification. In the case of any potentially fraudulent activity, it’s important to report credit card fraud to your credit card company immediately.

6. Pay More Than the Minimum

You’ve just read about how credit card interest works, so you’ll remember that only making the minimum payment doesn’t get you out of paying interest. To avoid credit card interest charges, you’ll need to pay off your monthly statement balance in full.

Understandably, this isn’t always possible, but even then, it still helps to pay as much above the minimum as you can afford to. This will at least cut down on the outstanding balance that accrues interest.

7. Don’t Close Out Old Cards

While it might seem logical to close out an older credit card you’re no longer using, you’ll want to think twice before you cancel a credit card. That’s because doing so can have adverse implications for your credit.

For starters, canceling a credit card will lower your credit utilization rate, which compares your total outstanding balance to your overall available credit limit. Closing out a card will cause you to lose that card’s credit limit, thus lowering the amount of credit you have available.

Closing an old card could also have an impact if the card in question is one of your older accounts. Another factor that contributes to your credit score is the age of your credit. By closing out an old account, you’ll lose that boost in age.

That being said, there are scenarios where it might make sense to close a card, such as if it charges a high annual fee. Just be mindful of the potential effects it will have on your credit before moving forward.

💡 Quick Tip: Aim to keep your credit utilization — the percentage of your total available credit that you’re using at any given time — below 30% (or lower). This could help you to maintain a strong credit score.

8. Maintain a Low Credit Utilization Rate

Another key tip for responsible credit card usage is to avoid maxing out your cards. Instead, aim to keep a lower credit utilization rate — ideally below 30%. The lower you can keep this utilization rate, the better it is for your credit score.

9. Avoid Unnecessary Fees

Another part of using a credit card responsibly is being aware of all of the fees you could face, and then taking steps to steer clear of those costs. Your credit card terms and conditions will spell out all of the fees associated with your card, as well as the card’s APR (or annual percentage rate) and the rules of its rewards program.

Many credit card fees are pretty easy to avoid. For instance, if you’ll incur a fee to send money with a credit card, simply avoid doing that and look for an alternative route. Similarly, you can avoid late payment fees by making on-time payments, and over-the-limit fees by not maxing out your credit card.

10. Avoid Applying for Too Many Cards

As you get into the swing of things with using your credit card, you may feel tempted to keep acquiring new cards, whether to keep on earning rewards or to capitalize on enticing welcome bonuses. But proceed with caution when it comes to applying for credit cards.

Applying for credit cards too frequently can raise a red flag for lenders, as it may suggest that you’re overextending yourself and desperate for funding. Plus, each time you submit an application for a credit card, this will trigger a hard inquiry, which can ding your credit score temporarily. Consider waiting at least six months between credit card applications.

The Takeaway

When used responsibly, credit cards can be helpful for a whole slew of things, from making online purchases to building your credit. The key phrase to keep in mind is “when used responsibly.” To stay on top of your credit cards, tips like signing up for automatic payments, making the most of the rewards programming, and using the right type of credit card for your needs are all important.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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If you’re one of the 44 million Americans who currently hold a portion of the country’s more than $1.7 trillion student debt—and are perhaps now back to making payments after a three-year pause—chances are you’re looking for solutions to get rid of that debt ASAP. After all, the average student who borrowed money to pay for school graduates with just over $37,000 in federal student loan debt alone.

Paying off that much debt is an impressive feat which takes discipline and commitment. If you’re currently living under the heavy weight of your student loans, you may have considered using your 401(k) for student loans. But should you really cash out your 401(k) for student loans?

It probably goes without saying that figuring out how you’re going to pay off your student loans is overwhelming—and there isn’t one definitive solution. And while it’s certainly tempting to just take the cash from your 401(k) and pay off a high-interest loan, there are some serious drawbacks to consider before running with that plan.

The Downsides of Using Your 401(k) to Pay Off Your Student Loans

A potential benefit of using your 401(k) to pay off student loans is that you can eliminate your debt in one fell swoop. However, withdrawing money from your 401(k) should be considered a last resort option—or maybe not an option at all. That’s because there are several major downsides to doing so:

•   Early withdrawal penalty: If you’re under the age of 59½, you’ll generally have to pay a 10% early withdrawal penalty on the amount you take out. The amount you withdraw will also be considered taxable income, which means you could owe a hefty tax bill for that year.

•   Opportunity cost: By using your 401(k) money to pay off student loans, you are potentially losing out on an overall higher return from your investments. For example, if your loan has an interest rate of 6% and your 401(k) returns an average of 8% per year, you essentially lose 2% a year by liquidating those funds to pay off your loans.

•   Difficulty catching up: With your stunted 401(k) balance, you’ll need to make much larger contributions going forward to make up for it, which could strain your budget. Plus, there is a cap on the total amount you can contribute to a 401(k) each year. You may never be able to fully make up for the growth you would have experienced if that money stayed invested.

When deciding whether or not to withdraw money from your retirement savings, it’s important to note that while you borrow loans for other expenses in life, there’s no such thing as a “retirement loan.” You’re responsible for ensuring you have enough money to live on in retirement.

While it can feel like student loans are preventing you from living your life or meeting your financial goals today, saving for retirement can be a valuable investment in your future.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Alternatives to Help Control Your Student Loan Debt

If you’re struggling with student loan payments, there are alternatives to taking money out of your 401(k) that can help you get your student loan debt under control while keeping your retirement savings intact. Here are a few examples:

Applying for Income-Driven Repayment

One option is applying for an income-driven repayment (IDR) plan. These plans reduce your payments to a small percentage of your discretionary income. The term length also gets extended out to 20 or 25 years, depending on the specific program. At the end of the repayment term, any remaining debt is forgiven. The exception is the newest plan, Saving on a Valuable Education (SAVE), which awards forgiveness for some borrowers with smaller balances within as few as 10 years.

Keep in mind that extending your repayment term usually means paying more in interest over the life of the loan. Any canceled IDR debt may also be taxed as income. Still, if your payments are far too high to afford on the Standard Repayment Plan, income-driven repayment could provide much-needed relief. In fact, if your income is below a certain threshold, you could qualify for $0 payments.

Pursuing Loan Forgiveness

There are also many programs that forgive student loans after you’ve worked in a qualifying profession and made a certain number of payments. On the national level, Public Service Loan Forgiveness (PSLF) is one example. If you work for a qualifying employer in the public service sector, such as the government or a non-profit, you can have your loans forgiven after 120 payments. Other similar programs include Teacher Loan Forgiveness and National Defense Student Loan Discharge.

In addition to federal forgiveness programs, there are also hundreds of programs offered through states, schools, and other organizations.

Refinancing Your Student Loans

When you refinance your student loans, you take out a brand new loan from a private lender, who will review your credit history and other financial factors to determine how much they will lend to you and at what rate. You then use those funds to pay off your existing loan(s).

With a solid financial picture and credit history, you could qualify for a lower interest rate. This could result in lower monthly payments, as well as reducing the amount of money you spend in interest over the life of the loan (depending on the loan term, of course).

You could also lower your monthly payments by extending the length of the loan term. This results in paying more money in interest over the life of the loan, but could help free up some cash flow more immediately.

It’s important to note that refinancing federal student loans with a private lender means you’ll permanently lose access to federal loan benefits including income-driven repayment plans, forbearance, and deferment.

To help you decide if refinancing is a good idea, take a look at SoFi’s student loan payoff calculator to see when you might pay off your current loans. Then compare that with a potential new loan—you may be surprised at how much of a difference refinancing can make. And with more wiggle room in your budget, you could make headway toward student loan repayment and save for a retirement you’ll be able to enjoy.

💡 Quick Tip: When refinancing a student loan, you may shorten or extend the loan term. Shortening your loan term may result in higher monthly payments but significantly less total interest paid. A longer loan term typically results in lower monthly payments but more total interest paid.

Options for Using Your 401(k) to Pay Off Debt

If you decide to pursue using 401(k) funds to pay off student loans despite the many risks and drawbacks, there are a few ways to go about it. First, you’ll need to determine how much you are eligible to withdraw from your 401(k), and what penalties and taxes you would encounter. In most cases, you would be responsible for a 10% penalty and regular income taxes on a withdrawal from your 401(k) prior to age 59 ½.

There are a few exceptions to this rule. For instance, if you were laid off, you may be able to withdraw money penalty-free as long as certain requirements are met.

And depending on the exact terms of your 401(k) plan, you may be able to withdraw the money from your plan without penalty in certain hardship situations—like to cover tuition or medical expenses.

If you already attended college and are trying to use your 401(k) to pay back student loans, that doesn’t qualify for a hardship withdrawal. If you’re not sure what the exact rules of your plan entail, it’s worth contacting your HR representative or the financial firm that handles your company’s 401(k) program.

Again, using money from your 401(k) to pay off debt can be a risky proposition. While on the bright side it would potentially allow you to eliminate your student debt, it also puts your retirement savings at risk. You’ll not only potentially have to pay a penalty and taxes on the withdrawn amount, but you’ll also lose out on years of compounding returns on money you take out.

Still, depending on your circumstances, you might be considering cashing out your entire 401(k). Alternatively, however, you could borrow against your 401(k) by taking out a 401(k) loan. Here’s a bit more info about those two options.

Cashing Out Your 401(k)

Withdrawing money from your 401(k) can seem like a tempting idea when your student loan payments are causing you to stress at the moment and retirement feels like it’s ages away.

But making an early withdrawal comes with penalties. If you withdraw your money prior to the age of 59 ½ you’ll pay a 10% penalty on the amount you withdraw, in addition to regular income tax on the distribution itself. In addition to the taxes and the early withdrawal penalty, money that you withdraw loses valuable time to grow between now and retirement. That is why, as mentioned, simply withdrawing money from a 401(k) very rarely makes sense, when you consider the taxes, penalties, and lost growth.

To reinforce this point, let’s consider a (completely hypothetical) person who earns $68,000 per year and is a single filer, putting them in the 22% income tax bracket. (And remember, this is just an example – there are many other factors that can come into play, but this should give you a high-level glimpse into why withdrawing cash from your 401(k) might not be the best call.)

If this person cashed out $20,000 from their 401(k), they would have to pay a 10% penalty of $2,000 right off the top. Then they’d need to pay federal income taxes at the highest end of their bracket, totaling $4,400. So even though this person took out $20,000 from their account, they actually receive just $13,600. Depending on their state, they might also pay state income taxes, let’s not get bogged down on that right now.

Now let’s assume they used that money to pay off $13,600 in student loans, which have a 5% interest rate and five years left on the loan. In this scenario, they would save roughly $1,798.93 in interest.

So essentially, this person would have incurred $6,400 in penalties and taxes in order to save $1,798.93 in interest. Plus, had they let that money stay invested in their 401(k) over the next five years, that $20,000 could have grown to more than $28,000, assuming a 7% average return. That’s why cashing out a 401(k) to pay off student loan debt might not be a great idea.

Borrowing from Your 401(k)

When you borrow money from your own 401(k), you are really borrowing from yourself. You are accessing your retirement funds and then paying them back, with interest, in an attempt to replenish your savings. So these loans don’t require a formal application or credit check.

Not all companies offer 401(k) loans, so it’s important to check with your employer to confirm if the option is available to you. (And for the record, you can’t take out a loan from an employer-sponsored 401(k) if you’re no longer with that employer.)

In addition to the rules determined by your employer, the IRS sets limits on 401(k) loans as well. The current maximum loan amount as determined by the IRS is 50% of your vested balance
or $50,000, whichever is less. If you have a balance of less than $10,000, you may be able to borrow up to $10,000.

The IRS also requires that the money borrowed from your 401(k) be paid back within five years based on a payment plan that is established when you borrow the money. There is an exception; if you buy a house with the money you withdraw, you may be able to extend the repayment plan.

If you don’t pay the loan back according to the terms, it’s considered defaulted and the balance may be treated as a distribution instead. That means you’d owe penalties and taxes on that amount for that year.

Note that if you change jobs, your 401(k) plan will roll over, but not your loan. If you leave your employer with an unpaid 401(k) balance, you’ll face an accelerated payment plan.

Interest rates are usually set by your plan administrator, and are relatively low compared to other financing options. It could be a viable option for those interested in securing a lower interest rate for their debt, but don’t qualify for student loan refinancing due to their credit history or other factors.

A 401(k) loan typically offers a relatively low interest rate and doesn’t require a credit check.

You may want to crunch some numbers and compare the interest rates on your student loans with the interest rate on a 401(k) loan before you commit to this course of action.

If your student loan interest rate is lower than the potential interest rate on your 401(k) loan, it could make sense to keep your retirement savings intact.

The other factor to consider is the missed growth on the money you borrow from your 401(k), which is why 401(k) loans could make more sense for high-interest debt such as personal loans or credit cards, but are typically less ideal for low-interest debt such as student loans or mortgages.

Hardship Withdrawals

While a hardship withdrawal won’t be an option if you are looking to pay off your student loans, it could be worth considering if you are planning on attending graduate school or are assisting a family member with their college education.

To qualify for a hardship withdrawal, you must meet certain criteria. You must prove your need is immediate and heavy. Tuition for the school year usually qualifies as immediate.

Student loan repayment wouldn’t qualify because they provide a repayment plan over a set period of time. You must also prove the expense is heavy. Usually, that means things like college tuition, a down payment on a primary residence, or a qualifying medical expense that is 10% or more of your adjusted gross income.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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Federal student loans never expire. Unlike private student loans, federal loans have no statute of limitations, which is the time limit creditors have to use legal means to collect on a debt. And while the clock technically can run out on private student loans, that doesn’t mean your student loans have vanished — lenders simply can no longer sue you to collect the debt. Plus, waiting it out will wreak havoc on your finances, anyway.

As such, waiting for student loans to expire is not a recommended tactic to manage student loans. Read on to learn more about why your student loans aren’t likely to expire and more effective ways to deal with student loan debt.

Why Federal Student Loans Don’t Expire

When does my student loan expire?

The answer to that question is “never” when it comes to federal loans. There’s no statute of limitations for collections on federal student loans. This means that if you stop making payments, your loan servicer or a debt collector can sue you to force repayment, regardless of how long it’s been since you last made a payment.

So what happens if you do stop paying your federal student loans altogether? First, your total balance will continue to increase. Whether or not you’re making any payments, interest will accrue, which means that every month your lender will add your new interest fees to your principal loan balance.

After at least 270 days of non-payment, your federal student loan will be in default. This can cause a number of things to happen, including loan acceleration (meaning your entire balance becomes due) and your loan getting sent to collections, which can damage your credit score and lead to additional fees from a collection agency.

Additionally, the federal government may decide to withhold your tax refund or even garnish wages directly from your paycheck. Your loan holder can also sue you to force you to pay up.

There is one temporary exception to this situation. Following the end of the federal student loan payment pause, which lasted from March 2020 to October 2023, the Biden administration instituted a special “on-ramp” period to protect financially vulnerable borrowers from experiencing the negative consequences of missing payments.

From Oct. 1, 2023 to Sept. 30, 2024, federal loan borrowers who miss one or more payments will not be considered delinquent or in default, have their missed payments reported to the credit bureaus, or have past-due loans referred to collections agencies. Any payments missed during this time will be due once the on-ramp period is over. And the normal process around loan default will resume Oct. 1, 2024.

Recommended: What Happens When Your Student Loans Go to Collections?

Why Private Student Loans May Expire

Unlike federal student loans, private student loans may be bound by a statute of limitations on collections. The statute of limitations varies by state and is generally between three and 10 years from the date you stopped paying your loans. Once the statute of limitations is up, the debt becomes “time-barred.”

Before you stop making your monthly payments, it’s important to know that a statute of limitations is not the same thing as an expiration date on your loans. A statute of limitations is merely a limit on the time that a lender or debt collector has to sue you in court to force you to pay back the loans.

Even if your debt is time-barred, you still technically owe the money, and failure to pay could lead to student loan default. When you default, you may face negative impacts to your credit score, and you may still end up dealing with collection agencies, plus any additional fees they may charge.

One Way You Can Get Rid of Student Loans

You can technically get rid of federal student loans in bankruptcy. However, doing so is extremely rare.

To potentially get your student loans (federal or private) discharged in bankruptcy, you would have to prove that paying your loans would cause you “undue hardship” (to borrow a phrase right from the U.S. Bankruptcy Code). Proving that paying your loans would cause undue hardship typically involves passing the Brunner test. This is a tool bankruptcy courts use that basically lays out ways in which you might claim undue hardship.

In short, it’s far from a sure thing, and the process is not especially clear-cut. But whether you’re 19 or 90 years old, your federal student loans will not just automatically expire after a period of non-payment — and failing to pay has some serious consequences.

Alternative Options to Manage Student Loan Debt

Just because federal student loans don’t expire doesn’t mean there aren’t other ways to manage your student loan debt. Here are a few other options you might explore.

Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is available to professionals who work for qualifying employers in certain fields such as government, the nonprofit sector, and healthcare. This program is meant to encourage graduates to fill needed jobs in the public service sector without worrying about making enough money to pay off their student debt.

PSLF requires that you make 120 payments (the equivalent of 10 years, though they don’t need to be consecutive) while working full-time for a qualifying employer. Only payments made under certain repayment programs (such as income-driven repayment) count toward forgiveness. Still, federal loan forgiveness may be a good option for public servants with lots of debt left to pay.

Income-Driven Repayment

Income-driven repayment (IDR) plans reduce your payments to a percentage of your discretionary income. For borrowers who fall below certain income thresholds, payments could be as low as $0. There are four IDR plans available today:

•   Saving on a Valuable Education (SAVE), which replaced REPAYE

•   Pay As You Earn (PAYE)

•   Income-Based Repayment (IBR)

•   Income-Contingent Repayment (ICR)

In addition to reducing payments, these plans also extend the repayment term up to 25 years. Once the repayment period is up, any remaining debt is forgiven (but may be considered taxable income). For the SAVE plan, in particular, certain borrowers with smaller balances could have their loans forgiven after just 10 years of payments. In some sense, it might seem like the loans have “expired.” But really, the loans were repaid according to the terms of the IDR plan and the debt is considered satisfied.

Student Loan Refinancing

Another option to save money on your student loans is student loan refinancing. Loan refinancing doesn’t change the underlying amount that you owe. However, it may reduce the amount of money you spend on interest and help you secure better payment terms, which can add up to some serious cash over the life of your loan. When you refinance a federal student loan, you replace it with a private student loan.

Refinancing your federal and private loans based on your current credit score and income may allow you to score a brand new loan with a better interest rate or a shorter payoff term. To see how refinancing your loans could help you spend less money in interest, you can take a look at this student loan refinance calculator. Just know that if you’re working toward PSLF, refinancing with a private lender will disqualify your loans from this and any other federal program.

The Takeaway

If you’ve been waiting around for your federal student loans to expire, you’re out of luck — federal student loans don’t expire. While private student loans may expire due to their statute of limitations, your debt won’t just disappear when this happens. Your finances will also suffer in the meantime. This is why it’s important to look into other ways to manage your student loan debt, such as student loan refinancing or income-driven repayment.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

When people talk about student loans in the medical community, the conversation can often revolve around physicians. While it’s true that doctors have exorbitant tuition bills, the same can be said for many other medical professionals.

Pharmacists are no exception, according to the American Association of Colleges of Pharmacy (AACP) annual survey data.

Pharmacy school students who graduated in 2023 borrowed $167,711 on average to finance their Doctor of Pharmacy (PharmD) education, according to the AACP. The vast majority (82.2%) said they had borrowed money to help pay for their PharmD program expenses.

Thankfully, being in the medical field also gives pharmacists access to multiple loan forgiveness options. Read ahead to learn about pharmacy loan forgiveness programs.

Considering Loan Forgiveness as a Pharmacist

Loan forgiveness programs exist to help incentivize graduates to pursue potentially lower-paying, but essential positions. One of the more well-known programs, Public Service Loan Forgiveness (PSLF), was created in 2007 under the College Cost Reduction and Access Act.

You may qualify for PSLF if you work for a government body or 501(c)(3) nonprofit and make 120 qualifying monthly payments under a qualifying repayment plan. Working as a pharmacist for the U.S. Department of Veterans Affairs or the U.S. Department of Health and Human Services, for example, may allow you to apply for PSLF.

Private student loans are not eligible for PSLF, but private student loans may be eligible for other debt relief programs. Pharmacists conducting extramural program research for a university or U.S.-based nonprofit, for example, may qualify for debt relief under the National Institutes of Health (NIH) Loan Repayment Program. You can receive up to $50,000 per year in federal and private student debt relief under the NIH Loan Repayment Program.

Below we provide more details about debt relief programs that can lead to pharmacist student loan forgiveness, including PSLF and the NIH Loan Repayment Program.

Public Service Loan Forgiveness

If you have a PharmD degree, you may have ample opportunities to work as a pharmacist for a government employer and apply for PSLF.

As mentioned above, the PSLF program is available to eligible government and nonprofit workers with federal student loans. The stipulations require borrowers to make 120 qualifying payments over a 10-year period before becoming eligible for forgiveness. Further, the employer must be qualified by the federal government, and you must work at least 30 hours per week.

The following federal student loans are eligible for PSLF:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Direct PLUS Loans

•   Direct Consolidation Loans

To qualify for PSLF, you would typically sign up for a federal income-driven repayment (IDR) plan. The Saving on a Valuable Education (SAVE) Plan is one of the IDR options you can choose. (All IDR plans can end with federal student loan forgiveness after 20 or 25 years, particularly if you’ve borrowed a large amount of federal education loans.)

The SAVE Plan is the most affordable repayment plan for federal student loans, according to the U.S. Department of Education. Beginning July 2024, SAVE Plan payment amounts are based on 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average for borrowers who have both.

The original PSLF rules made it difficult for borrowers to receive loan forgiveness under that program, but the U.S. Department of Education announced permanent PSLF updates that took effect in July 2023.

The department previously relaxed some of the PSLF requirements for a limited time in 2021 and 2022 during the Covid-19 national emergency. Since then, the department has forgiven $45 billion in federal student debt for more than 650,000 public employees enrolled in the PSLF program, according to Education Department data.

Can Pharmacists Get Loan Forgiveness?

The U.S. Supreme Court ruled against President Joe Biden’s plan to forgive up to $20,000 in federal student debt for qualified loan holders in June 2023, but pharmacists can still get student loan forgiveness under a variety of programs.

Pharmacist student loan forgiveness is possible under programs like PSLF if you work for a government or nonprofit employer as a health professional. In addition to PSLF, there are specific loan repayment programs that may offer loan forgiveness for pharmacists.

Student debt refinanced with a private lender is not eligible for PSLF, but refinanced student debt may be eligible for other debt relief programs highlighted below. You may pay more interest over the life of the loan if you refinance with an extended term.

💡 Quick Tip: Ready to refinance your student loan? You could save thousands.

Student Loan Forgiveness and Repayment Programs for Pharmacists

Besides the PSLF, you might consider these programs that offer repayment and forgiveness help for pharmacists:

The National Health Service Corps State Loan Repayment Program

The federal Health Resources and Services Administration (HRSA) has a National Health Service Corps State Loan Repayment Program that provides student debt relief to eligible pharmacists and other health professionals who work in designated Health Professional Shortage Areas (HPSAs).

The California State Loan Repayment Program, for example, offers up to $100K in federal and private student debt relief to pharmacists who work in a qualifying role for three years.

A state-based Student Loan Repayment Program (SLRP) typically receives federal funding, but states can set their own SLRP eligibility requirements. This means you may not be eligible for pharmacist SLRP student debt relief in all states. It’s also worth noting that offerings may change every year and that states are not obligated to award maximum loan repayment amounts available.

Substance Use Disorder (SUD) Workforce Loan Repayment Program

Pharmacists who work at eligible substance use disorder (SUD) treatment facilities may qualify for student loan repayment assistance under the National Health Service Corps’ SUD Workforce Loan Repayment Program.

Pharmacists can receive up to $75,000 in student loan forgiveness in exchange for three years of full-time service at an approved SUD treatment facility. Such sites may include office-based opioid treatment facilities, state correctional facilities, federal prisons, and community health centers.

The National Institutes of Health Loan Repayment Program

As mentioned earlier, pharmacists conducting extramural program research for an eligible employer may receive up to $50,000 annually in federal and private student debt relief through the NIH Loan Repayment Program.

Although private student loans and federal loans are eligible, you must have a sizable student debt-to-income ratio of at least 20% to qualify for an initial NIH Loan Repayment Program award. It’s possible to have all of your student debt repaid through this system, because there’s no limit to how long you can work for a qualified extramural research program.

Indian Health Service Loan Repayment Program

Pharmacists who work at Indian health facilities for two years may receive up to $50,000 in student debt relief from the Indian Health Service (IHS) Loan Repayment Program. Private and federal loans are eligible for relief under this program.

Indian health facilities are hospitals, clinics, and other medical facilities administered directly by IHS, a Tribal organization, or an Urban Indian program. These facilities are typically based in American Indian or Alaska Native communities. The majority of the locations are rural and remote.

💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

U.S. Department of Defense Educational Loan Repayment Program

Federal law allows branches of the U.S. armed forces to repay federal student debt of enlisted members serving in specified military specialties or commissioned officers serving in specified health professions. Pharmacists who enlist in the U.S. armed forces may qualify for student loan repayment assistance under this program.

The U.S. Army and U.S. Navy, for example, may repay up to $65,000 of qualified federal student loans in good standing. Eligibility for this loan repayment program may require that you serve for three years in a critical military occupational specialty or longer.

Refinancing Your Student Loans

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

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